CD or Money Market Account: Which Of Them Is Better For You?

Money market accounts are a form of investment, not a savings account. This means there is the possibility of losing money and there is no guarantee of earnings. If interest rates are low then money market rates will also be very low, so investors cannot earn very much.

Money market rates usually do not ever go over inflation, so they are not good long-term investments. If you are looking for long-term savings or a long-term investment, you might want to consider an alternative to a money market account. A savings account can make sure you do not lose any money, but you also won’t gain any money other than the interest.

Unlike money market funds, CDs are safer because they are guaranteed by the federal government. This means they have to follow rules and regulations just like savings accounts. Most of them are guaranteed by the Federal Deposit Insurance Corporation (FDIC). This is a government-sponsored agency and they guarantee amounts up to $250,000.

Since the CDs are federally insured, the security of the principal amount you put into the CD is reserved the same as treasury bonds. The interest rates can fluctuate though and might not be reserved in the same way.

Unlike other bank accounts or CD accounts, most money market accounts do not charge a fee for closing the account. They also don’t have a set length that you have to keep your funds in the account before removing them. However, they will charge fees if your balance drops below the minimum amount.

If you aren’t using the account, you should close it to avoid monthly fees and fees when your balance is too low. You need to contact the bank to close the account, not just withdraw all the money. Always make sure the account is fully closed.

CD rates are almost always higher. If you want to make the most amount of interest, you can set up a CD account. However, you won’t be able to access the money until a certain term ends. So, a CD might not be the best plan if you think you will need the money in the short term. Withdrawing will result in fees that are several months or a year’s worth of interest.

Money market rates offer you access to your money, so you will be able to withdraw money up to 6 times a month. They also usually have larger minimum balances and sometimes offer checks.

The rates are usually only around the same as regular savings accounts though, so you won’t be earning very much interest. If you want to earn more interest, a money market account might not be the best choice.

A CD is basically a long-term savings account. You will be able to put money away for the future and earn high interest in it. You cannot access the money for the specified time period though without having withdrawal fees.

A mutual fund is more short-term and requires a high minimum deposit, while CDs can be opened with much lower amounts. Some mutual funds also require you to have a certain minimum balance to receive the highest interest rates.

Mutual funds are not insured by the FDIC. If you want a short investment though with access to the money whenever you need it, a mutual fund is a better option than a CD even though it does not earn as high interest.

A CD rollover is sometimes called a renewal. This means the money you invested can be deposited into a new CD. The interest you earned can also be invested into a new CD. Some banks automatically roll over the CD, so you will need to make sure you tell them you don’t want it rolled over if that’s the case.

Some CDs don’t have a rollover feature, so they will stop earning interest as soon as they mature. The bank will always send you a notice saying the CD is coming to an end and they will ask what you want done with it.